The tandem technologies of hydraulic fracturing and horizontal well drilling haven’t just unlocked reserves of natural gas trapped in shale—they’ve also given America access to so-called “tight oil” trapped in shale as well. This oil boom has significantly boosted US GDP and led to a jobs boom in places like North Dakota and Texas, and the new supply of oil has acted as a stabilizing force in global oil markets. But the Economist argues that policy is lagging behind events, and makes the case for opening up America’s crude oil exports:
The ban on crude-oil exports hurts producers and makes it harder for America to become a swing supplier. Light, sweet (ie, low-sulphur) West Texas Intermediate already trades at a discount of $8 to Brent, its global peer. That is due mostly to transport and storage bottlenecks in America, but increasingly the export ban makes a difference. In recent decades American refiners have reconfigured themselves to handle the heavier, sour oil imported from Mexico, Venezuela and Canada’s tar sands, leaving them with less capacity for refining tight oil, which is light and sweet. […]Oil producers would obviously benefit from lifting the ban. So might other Americans, in less obvious ways. A global oil market that fully included America would be more stable, more diversified and less dependent on OPEC or Russia. The geopolitical dividends could be hefty. As Pioneer’s Mr Sheffield notes, “It’s hard to believe we’re asking the Japanese to stop taking Iranian crude, but we won’t ship them any crude ourselves.”
We’re generally for more free trade, rather than less, and to the extent that exporting American crude allows producers to fetch a higher price for their work, more wells will be able to be operated profitably, which would help keep the shale revolution rolling.This is quickly becoming a hot political topic, and it’s one we’ll be following closely. But as a primer for what’s at stake, and who the various stakeholders are, you could certainly do a lot worse than this latest Economist piece; take the time to read the whole thing this Sunday afternoon.One thing is certain: this is certainly the kind of problem we’d like to have. Deciding what to do with a new abundance of hydrocarbons is a lot nicer than worrying about scarcity.